Codexis Expands Rolodex

Maxxwell A.R. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Earlier this week Codexis (NASDAQ: CDXS) announced that the board of directors had completed their search for the company’s next CEO and appointed Albemarle’s (NYSE: ALB) VP of Catalysts John J. Nicols as the new company leader. It was a welcomed move by investors, who responded by lifting shares 10%, but it may only be short-lived as there is still one big question looming overhead.

The search for a new CEO began in February when the sustainable chemicals company lost both CFO Robert Lawson (although his exit was planned months in advance) and CEO Alan Shaw, who had been with Codexis since its inception. Analysts and investors jumped at the news of his resignation and questioned progress at the company. I offered a different reason without the doomsday predictions.

There’s no debating that Alan Shaw was great at moving Codexis into the biopharmaceutical space. The company added Merck, Pfizer, Teva, DSM, and other giants to their customer list during his tenure. But now, Codexis’ pharmaceutical enzymes and intermediates division is standing on its own two feet and the company is pushing full-speed ahead into the cellulase enzyme market. From a business standpoint Shaw just wasn’t the right person for the job.

John J. Nicols on the other hand may be just who Codexis needs to guide their growth into detergent alcohols and other specialty chemical industries that can utilize the company’s cellulase enzymes. Mr. Nicols was the former VP of Catalysts at Albemarle, a $5 billion specialty chemical company, and oversaw sales growth of $278 million and income growth of $200 million from 2006 to 2011. That’s pretty impressive in itself, but not what investors should focus on.

If Codexis’ platform and technology perform as advertised then Mr. Nicols will have a much easier job (I think we all know that the real people making the technology work don’t sit on the board of directors, but on that squeaky swivel chair in the lab.) Will his experience in fostering growth and expansion help? Of course. But the focus should be on Codexis’ newly expanded Rolodex in one of their major target markets: specialty chemicals. Mr. Nicols expanded Albemarle’s catalyst business by forming JVs with SABIC and Petrobras, both leading global companies. That could pay off in a significant way for Codexis down the road.

I would certainly call the appointment of Mr. Nicols as CEO a big step forward for Codexis. Unfortunately, the next big question for the company may drag on shares after the honeymoon period is over. A major partnership with Royal Dutch Shell (NYSE: RDS-A), from which Codexis generated 60% of 2011 revenue, is up for renewal in October. While it is impossible to know what Shell management is thinking, some say the recent termination of a partnership with Iogen (another industrial enzymes producer) hints that the company is leaning away from biocatalytic processes and towards thermocatalytic processes. Either way, Mr. Nicols seems like the right person to steer the company in the right direction – with or without a renewal of the Shell contract. 

Did you enjoy this post? Follow me on Twitter to keep up with my future posts on value opportunities, energy, and sustainable chemicals @BlacknGoldFool.

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BlacknGold owns 250 shares of Codexis. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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